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Investors shrug off January blues, finds Lloyds survey

Cherry Reynard
Written By:
Cherry Reynard

UK investors have shaken off the January gloom, showing improving sentiment for the fourth month in a row.

The Lloyds Consumer Sentiment index is up 2.5% since December 2017 and 3.3% higher than this time last year. The index has been on a ‘topsy-turvy’ year, said Lloyds Private Bank, with sentiment rising and dipping with changes in the macroeconomic climate.

UK shares had lagged their global peers in the wake of Brexit, but have seen a noticeable improvement in January, increasing by 8.5% to 12.3%. Investor confidence in UK government bonds and UK corporate bonds both increasing by 2.9%. This may be partly a response to an improvement in sterling, which hit post-Brexit highs against the US dollar this week.

Investor sentiment in the US stock market continues to be strong, in spite of fears that it may be over-heating. Investors have also warmed to international shares, including the Eurozone (+2.2%), Japan (+3.0%) and Emerging Market (+4.4%).

The improvement in sentiment towards Emerging Markets comes after a strong year for the asset class, up 34.3% against January 2017. US shares were also strong, up 19.4%, led by technology names. Japanese shares were the other big winner, up 18.1%. UK shares show the biggest improvement month-on-month.

Markus Stadlmann, chief investment officer at Lloyds Private Bank, said: “Although UK and US shares both scored highest this month for sentiment, we see contrasting valuation scores between the two. In our view, despite some good growth signals emerging from the US where tax cuts should further support corporate growth in 2018, we currently think US equities are expensive. Conversely, we see UK equities – and also Emerging Market equities – as being cheap.

“A final thought: despite a mid-ranking performance score this month, Japanese equities are our ‘one to watch’ in 2018. The Japanese economy is in rude health, with less support now required of the central bank. Tellingly, the profit margins of Japanese corporates as a percentage of revenues are currently higher than their previous peak in the 1980s.”